update - 13 may 2013

Its all starting to come together.

Let me explain.

1. Aussie dollar under parity to USD.
2. Global 10 year govt yields moving 20 points higher than last week.
3. Credit spreads on corporate bonds at 5 year low meaning QBE pays less to insure against default on its purchasing of corporate bonds
4. Major cats this half (4.5 months) would be no larger than $200 million with forecast allowance of circa $600 million i.e. we are currently up $400 million
5. Premium growth in important markets of US & Australia achieving 5% increases
6. Current US crops projections forecasting to achieve largest quantities of corn,wheat & soy beans in a very long time ensuring a very profitable year for Qbe crop insurance
7.Qbe re-financed 5 year $600 million debt at 2.4%. I would bet they will be refinancing some other debt very soon at these prices.
8. Mngt finally cutting overheads and consolidating all the recent acquisitions into a true global company, Forecasts of $250 million savings each year from 2015.
9. QBE LMI projected to have its best year in avery long time with delinquencies at all time lows and the expansion of RMBS market in Aust increasing premium income.

I bet that the owners of the 50 million QBE shares currently shorted will be shaking in their boots and like JB Hifi has done in the last 6 weeks, I bet the share price will run above $16 very quickly.

With 47 days to go to 30 june and subject to no major cats or credit meltdowns, we are looking at circa $1 billion net profit for 1st half. This equates to 80 cents per share. Remember consensus forecasts are hovering around 50 cents per share.

At a PE of 15 and doubling EPS for full year($1.60), Qbe would be valued at $24.

Obviously, this would be a best case scenario if everything went our way. I f we assume that the 2nd half only achieves what its current projections of 50 cents per share, this would equate to $1.30 per share.

At a PE of 15, this values at $19.50.

Even at this price, the current share price is trading circa 30% under these valuations.